On the face of it, last week has been good to the Nifty 50. Despite a weak closing on Friday, Nifty closed almost at the highest point of the week, apparently signalling the continuation of an uptrend that has been on since November 7. However, despite the relentless upmove, concerns are mounting, as the contribution to the upward move has been from a very small handful of Nifty 50 stocks. More importantly, the smaller caps continue to be reluctant and have hardly joined the party, despite the lag becoming visible for weeks on end.
FIIs continue to stay away
The hopes of Foreign Institutional Investors (FIIs) returning as buyers have continued to remain just a hope. For months on end, the low long-short ratio of index future positions held by FIIs had suggested that positions would be reversed, being at extremes for such a long period, triggering short covering.
But, other than a few days of long build-up, short covering never gained momentum. Last Friday saw longs being reduced by nearly 6% while shorts were boosted by 1.59%, restricting the long-short ratio of FII index future positions to just 11.6%.
Broader market cues
While nearly 60% of Nifty 50 stocks are trading above their respective 10-day SMA, only 22% of the Nifty 500 stocks are trading above the same. This is further evidence of the fact that the recent rally has been more of an index phenomenon and has not become broad-based yet. Last week too, the lag between the large and smaller cap stocks was discussed, but it is instructive to note that fewer constituents from the Nifty 500 index, when compared to last week’s 44% are able to stick their head above this moving average at present.
Only the banks, FMCG and Auto stocks have been able to buck this trend, while the metal and oil & gas sectors have the fewest number of stocks trading above their respective 10-day SMAs. Even from a longer-term point of view, as indicated by the 200-day SMA, the small-cap index has only 41% constituents trading above this MA, when compared to over 49% constituents seen above at the end of the previous Friday.
Nifty Metal turns weak; Index may head towards 9,750
The Nifty Metal Index has faced sustained profit booking since mid-November and on Friday broke below its rising trendline, forming a bearish Marubozu candle that underscores weakness. The weekly chart echoes this sentiment, with another bearish Marubozu and signs of MACD histogram fatigue pointing to further downside risk.
Derivatives data strengthens the bearish case—nearly 70% of stock futures saw long unwinding on Friday, while close to 90% recorded unwinding on a weekly basis, reflecting traders’ expectations of deeper declines.
Heavyweights including Adani Enterprises, JSW Steel, Tata Steel, Hindustan Zinc, Hindalco Industries, and Jindal Steel are showing notable weakness and are likely to pressure the index lower, with potential targets around 9,980 and 9,750 in the coming weeks.
Nifty Auto near breakout; upside targets seen at 28,400
The Nifty Auto index has been consolidating in a narrow band since July and is now testing the upper boundary, hinting at a potential breakout in the near term. Momentum indicators remain supportive—the MACD has stayed positive since the start of the week, while monthly charts show stronger signals with both Supertrend and MACD breakouts pointing to further gains.
Derivatives data reinforces the bullish setup: about 40% of auto stocks added long positions on Friday, and nearly 64% saw short covering on a weekly basis, suggesting traders are positioning for strength ahead. Leading names, including M&M, Maruti Suzuki, Tata Motors PV, Eicher Motors, and Hero MotoCorp, look primed to extend the rally, with the index likely to advance towards the 28,000–28,400 zone in the coming sessions.
